State, local revenues soared until 2007: census

U.S. dollar bills are displayed in Toronto March 26, 2008.

WASHINGTON (Reuters) - Before the U.S. recession delivered a one-two punch to state and local economies, most cities and states experienced five years of rapid revenue and spending growth, according to a U.S. Census Bureau report.

From 2002 to 2007, state and local government revenue increased 69.6 percent to $3.1 trillion, while expenditures rose 29.5 percent to $2.7 trillion, according to the Census Bureau report released on Wednesday.

The data shows the speed at which revenues have since declined, with many states and cities now facing budget gaps, and spending cuts.

Over a third of 2007 revenue came from taxes, the report found. Property tax revenue totaled $383.14 billion in 2007, up by 37.2 percent from 2002, and equal to 30 percent of overall tax revenue, according to the Census.

But 2007 represents a turning-point for state and city economies. The U.S. housing market took a sharp downward turn, hitting state and local governments' property and sales tax revenue as people stopped buying and furnishing homes.

Then, at the end of that year, the recession began driving down states' income tax revenue as more and more people were laid off.

A survey released this month by the National League of Cities projects that property tax revenue at the local government level will decline through 2012.

Fiscal constraints have forced larger states like California to turn to short term debt to meet spending needs.

The amount of federal dollars flowing to states and cities has also changed since 2007, when it only represented 15.2 percent of total revenues, according to the Census.

During the past two years of economic decline, the federal government has pumped money into states and cities through bond programs, development grants and via a "stabilization fund" in the $787 billion stimulus plan enacted in February.

A recent study released by the Pew Center on the States found federal funding through the stimulus act is now a leading source of state revenue.

Federal stimulus was channeled through funds for transportation repairs, schools and increased social welfare spending. That could mean that spending priorities have remained the same since 2007.

Then, the largest spending category was education, which represented $776.6 billion, followed by welfare at $377.4 billion and highways at $144.8 billion, according to the Census Bureau.

South Dakota, Alaska and North Dakota spent the most on highways.

(Reporting by Lisa Lambert; Editing by Andrew Hay)